Financial Reform: Signature Today, But Few Changes Tomorrow

At 11:30 AM EST, the Dodd-Frank Wall Street Reform and Consumer Protection Act, otherwise known as Financial Regulatory Reform, will be signed by the President and become the law of the land.

But while some changes will begin immediately, the vast majority of this legislation – particularly the provisions most affecting Main Street – won’t start showing up for months, or even years.

Here’s a rough timeline:

Between now and next year

• Establishing a loan cop: The Treasury will start setting up the Consumer Financial Protection Agency. The president will appoint its leader.
• Uncovering potential problem companies: Regulators will determine ways to identify and track financial firms that are big enough to create a systemic risk in the event of failure.
• Establishing rules for dismantling failing institutions: The FDIC has already started creating the process to wind down any troubled financial institutions whose failure could undermine the financial system.
• Offering say on pay: Those who own stock in public companies will get a non-binding vote on the pay packages of executives running those companies.
• Regulating swipe fees: The Federal Reserve will issue rules establishing “fair and reasonable” debit card interchange fees – the fees merchants pay to process Visa and MasterCard transactions.
• Creating rules for derivatives trading: Over the next year, the Commodities Futures Trading Commission and the SEC will establish rules designed to create more transparency in the trading of derivatives. (Don’t know what a derivative is? Financial Reform Explained: What The Heck Are Derivatives? explains them.) This will ultimately entail bringing previously anonymous transactions onto exchanges and establishing limits on collateral firms must post. Keep in mind, however, that the actual arrival of trades on exchanges will be much further down the road: it’s just the rules that will be created within the year.

More than one year away

• Curbing proprietary trading: The reform bill mandates limits on trading that banks can do for themselves, as well as limiting the amount that banks can invest in internal hedge funds. But the specifics are expected to take a couple of years to iron out – maybe more.

Studies first, changes later

All in all, there are more than 40 studies called for under the new law, and until the results of those studies can be examined, many of the proposed rules won’t go into effect.

Like health care reform, this new bill is so broad and complex that while it may start moving forward as soon as the ink dries today, the progress may more resemble a herd of turtles than a speeding bullet.

To learn more about the studies that are a part of financial reform, see our article Wall Street Reform – Vote Over, Studies Just Beginning. For a detailed look at the new law, see What Financial Reform Means to You.